Author: Tim McPartland

Once again we see ‘soft’ economic data and substandard earnings in the tech sector and interest rates and equity prices ‘party’. Actually it is kind of nice to have days like the last few–give us all a mental rest. My accounts have bounced a little–with the emphasis on ‘little’.

New house sales came in soft this morning – down 10.9% from August and down 17% from a year ago—not exactly a crumbling market, but directionally favorable for interest rates. The 10 year treasury yield is all the way down to 4.01%–down about 10 basis points. Seems folks are hanging their hats on a ‘pause’ or less hawkish view from the Fed come 11/2–moving these markets higher kind of sets us up for potential disappoint from Fed Chair Powell.

Yesterday I did nibble on the 2 issues I mentioned – here. Now I am looking to see if I want a little more of the Customers Bancorp (CUBI) 5.375% baby bond (CUBB) with a current yield of 6.62% and a maturity in 2034–with cash positions being very low I am ‘shopping’ carefully.

Google and Microsoft earnings last night may well serve to soften equity prices today–at least the Nasdaq and the S&P500. Both big tech firms missing the earnings forecast and it is almost a certainty that Meta Platforms (Facebook) will miss tonight. Of course this is not my area of interest on a company level basis–but it does serve to show a potentially weakening macro environment. Plus it appears that some of these big tech firms are going to have to have layoffs – certainly something they have not dealt with in recent years (if ever).

The 10 year treasury yield is off 4 basis points this morning at 4.06%. Will rates break back below 4%? Have rates peaked? It is possible, but I doubt it—but no one knows. The ‘smart people’ have posited a peak for the last 50 basis points—completely wrong of course. Income securities barely moved on yesterdays interest rate drop–we need this area of rates to hold for a week or more to build investor confidence.

Yesterday we had house price news with both Case Shiller and FHFA showing softening house prices–although far from falling off a cliff. Consumer confidence came in soft as well with a reading of 102.5 versus a forecast of 106.3.

Today we have new home sales being announced with a forecast of 593,000 which would be around 15% below a year ago. If we were to see a large deviation on this number it could move interest rates in either direction.

S&P500 futures are off a bit this morning–not much but a little. Quiet day? Who knows of course, but with earnings season upon us anything can happen. The 10 Year treasury yield is lower at 4.17%–off 6 basis points.

Speaking of earnings I am anxious to watch BDC earnings (or lack thereof). In particular I want to watch for both realized and unrealized gains and losses. From what I have observed thus far the unrealized losses are fairly high–much higher than a year ago. Generally the well diversified BDC will do just fine for now, but there will likely be a few that fall below (or near) the minimum asset coverage levels of 150% (there are a few that still have a 200% minimum asset coverage requirement).

Yesterday residential mREIT Dynex (DX) reported as did commercial mREIT KKR Real Estate Finance (KREF) giving us an early look in these sectors.. Neither report was pretty—no one expected them to be great.

Yesterday we had soft purchasing managers numbers released. Today we have home price indexes released as well as consumer confidence. I would be surprised if either of these moved markets – important as part of the macro picture, but individually not important.